Cheap Money Makes Everything Expensive

It's a paradox that captures the essence of our economic landscape, where low-interest rates and easy access to capital have created an environment that distorts value and skews priorities.

The allure of cheap money is undeniable. Central banks slash interest rates to stimulate the economy, aiming to encourage borrowing and spending. Businesses and consumers alike are tempted by the prospect of easy loans and low financing costs. It seems like a win-win scenario – until it isn't.

When money is cheap, it flows freely. Investments that might have been deemed too risky or unwise suddenly seem viable. Companies take on debt to fund expansion, often at the expense of prudence. Homebuyers stretch their budgets, bidding up prices in a frenzy of competition. The stock market inflates as investors chase higher returns, pushing valuations to unsustainable levels.

This easy access to capital doesn’t just inflate asset prices; it inflates expectations. We start to believe that perpetual growth is the norm, that the boom times will never end. But history has shown us, time and again, that bubbles eventually burst.

The very cheap money that fuels the rise can just as quickly precipitate the fall.